Finance Ministry On Defensive Over Interpretation of OECD Report

During the recent public release of the contents an OECD report, the Ministry of Finance and Economy somehow failed to include the organization’s advice on a phase-out of the Korean government’s strict regulations on properties, which sparked controversy over its intention.

According to the ministry on December 9, the OECD released its “World Economic Outlook for the Second Half of 2007,” which analyzed member countries’ macroeconomic conditions, economic outlook and policy advice.

The ministry followed the usual procedure of acquiring the report and summarizing the part related to Korea to create press releases. However, the government agency did not completely convey the OECD’s policy advice for the nation.

The OECD report noted, “The Korean government’s regulations that have taken effect since this September, including price caps on newly-built apartments and the unveiling of apartment construction costs, will eventually reduce investment in housing construction in the mid term.” The report added, “Those regulations should be phased out.”

The report also stressed, “Monetary policies should be aimed at price stability in the mid term. Concerns over housing bubbles should be addressed by measures to increase housing supplies.”

However, the ministry did not fully convey this policy advice on Korean real estate matters. It just commented, “Korea should increase its housing supply for stability in the real estate market.”

The report also stated, “Korea’s overnight call rate has risen to 5 percent from 3.25 percent two years ago, which indicates there are concerns about rising asset prices, especially housing prices.” It also pointed out, “Increased overnight call rate also puts an upward pressure on the won by spurring the influx of capital into Korea.”

An official from the ministry denied any allegation that it did it deliberately and said, “A phase-out of property regulations had already been mentioned by the OECD. It’s not totally new.” He also said, “It just happened in the process of abbreviation. The ministry did not have any intention or whatsoever in omitting the particular content.”

The OECD also made recommendations on the phase-out of the price cap system in its report “A Report of Korean Economy” issued in June, saying, “Long-term persistence of real estate-related measures like the price cap on newly-build apartments will likely push the housing supply down. It will, therefore, exert negative effects on housing supplies and prices.”

higgledy@donga.com